Analyst: Cost increases have little effect on Apple product margins

During Apple's earnings conference call in July, analysts were surprised by Apple's earnings guidance for the summer quarter. Component prices for things like NAND flash and LCD panels were offered as the culprit for lower product margins during the summer. But depending on how much Apple planned for the component price hikes, the situation may not be as bad as it seems. Analyst Andy Hargreaves is suggesting that, thanks to planning and new products, Apple will see increased margins even with the higher costs for important parts.

Prices for flash memory and LCD panels have gone up quite a bit this summer, and may continue to rise. The price differences could mean margins that are lower by three and five percent for iPods and Macs, respectively. Then again, the prices quoted are normally "on-the-spot" prices, or what you would pay if you wanted to buy a NAND flash chip right now. Since Apple is a large buyer of memory, it's likely that the company prepared for the price increases by negotiating bulk contracts. Apple probably got a nice discount by inking large contracts before prices rose, so cost may not be such a problem after all.

Also positive is the fact that Apple is releasing new versions of a number of products in the coming months. The iMac has already been refreshed, and new iPods, a new OS, and perhaps new MacBooks and iPhones will all be available before Christmas. New Apple products tend to sell quite well, so increased volume may make up for smaller margins. Recurring revenue (like revenue sharing from the iPhone) will also help smooth out the bottom line. Apple seems to be handling the production cost increase well, so don't expect higher prices or significantly lower earnings anytime soon.